Correlation Between Amazon and Chewy

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Can any of the company-specific risk be diversified away by investing in both Amazon and Chewy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Amazon and Chewy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Chewy Inc, you can compare the effects of market volatilities on Amazon and Chewy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Amazon with a short position of Chewy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Chewy.

Diversification Opportunities for Amazon and Chewy

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between Amazon and Chewy is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Chewy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chewy Inc and Amazon is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Amazon Inc are associated (or correlated) with Chewy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chewy Inc has no effect on the direction of Amazon i.e., Amazon and Chewy go up and down completely randomly.

Pair Corralation between Amazon and Chewy

Given the investment horizon of 90 days Amazon is expected to generate 2.5 times less return on investment than Chewy. But when comparing it to its historical volatility, Amazon Inc is 1.74 times less risky than Chewy. It trades about 0.14 of its potential returns per unit of risk. Chewy Inc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,657  in Chewy Inc on May 14, 2022 and sell it today you would earn a total of  2,341  from holding Chewy Inc or generate 88.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Chewy Inc

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Amazon disclosed solid returns over the last few months and may actually be approaching a breakup point.

Amazon Price Channel

Chewy Inc 
Chewy Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Chewy Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chewy showed solid returns over the last few months and may actually be approaching a breakup point.

Chewy Price Channel

Amazon and Chewy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Chewy

The main advantage of trading using opposite Amazon and Chewy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Chewy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chewy will offset losses from the drop in Chewy's long position.
The idea behind Amazon Inc and Chewy Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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